Like British cheddar? Enjoy it while you can still find it

The grey weather outside Darren Larvin's window in Wiltshire, U.K., when hespoke to CBC News last Tuesdaymatchedthe forecast for his company'sCanadian cheese sales in 2024.

"Essentially, we're going to fall off the edge of a cliff at the end of this year," said the managing director ofCoombe Castle International, an award-winning global exporter of British dairy products like specialty creams, butters and cheeses.

After Brexitthe United Kingdom's departure from the European Union in 2020 an interim agreementkept tariff-free British cheeseon Canadian shelves for three years, asgovernment negotiators worked on a longer-term bilateral trade deal to replace the liberalized trade the U.K.enjoyed under the terms of Canada'sComprehensive Economic and Trade Agreement (CETA) with the EU.

Those bilateral negotiations have yet to land. And in the meantime, both sides confirmtheir temporary cheesedealexpires at the end of 2023. There's a risk British cheeseimports are set tonosedive.

After four decades of working with other top British cheesemakersto findopeningsfor fancy U.K. cheddars inCanada's notoriously closed dairy market, Larvinadmits to feeling"pretty desperate." This change affects about one-third of his business. While British cheese shipmentsmay not drop to zero, he's poised to lose a lot of Canadian shelf space.

According to international trade data,the U.K. exported overtwo million kilograms of cheese to Canada in 2022 and a massive slice of that areCoombe Castleproducts.Cheese isa seasonal commodity: trade data suggests Canadians love theirparty platters and holiday gift baskets at this time of year, with strongdemandfor the kind of specialty cheddars Coombe Castle ships which includes Advent calendars and even a maple cheddar uniquely targeted at Canadian tastes.

Larvin says his company worked with its Canadian partner to shipas much as it can to close out 2023. But once that stock sells through, jobs are at risk fornot onlyhis U.K. suppliers but also small businesses in Canada like theboutique shops that feature his products.

CBC News reached Lisa MacNeil from Tree of Life, a Torontocompany thatpartners with Coombe Castle to import British cheeses. She confirmedthis changenegatively impactsher business too, and said "it didn't need to happen."

'Off the table'

Canada's dairy industrybelieves the U.K.'s decision to leave the EU (and by extension, CETA) shouldn't becometheir problem to fix.

In the aftermath of the bruising renegotiation ofthe North American Free Trade Agreement, Prime Minister Justin Trudeau promised dairy farmersthat no additional slices of Canada's domestic market will be served up to exporters in future negotiations.

"For dairy farmers, a promise made is a promise kept and we expect the same from our government," former Dairy Farmers of Canada president Pierre Lampron wrote in a Dec. 1, 2022 letter, reminding the governmentthattrade deals the Liberalsimplemented since coming into office have, by the dairy sector's calculations, already outsourced 18 per cent of Canada's market to foreign producers.

"The Canadian dairy industry must not be further penalized by the U.K.'s decision," Lampron said."New access to the Canadian dairy sector should remain off the negotiation table."

Aprivate member's bill currently in the Senate could also tie negotiators' hands and prohibit future trade treaties from conceding additionalimports ofsupply-managed farm productslike cheese.

Competing for a smaller share

To import cheese tariff-free, a business needs to holdtariff rate quota (TRQ) permitsassigned by the Canadian government for specific annual volumes, subject to specificcriteria.

Global Affairs publishes import data for specificcategories of cheeses, according to the terms of Canadian trade treaties as well as World Trade Organization rules. In2023, TRQ wasallocated for up to:

• 16 million kg from the EU, under the auspices of CETA (plus an additional 1.7 million kg of European industrialcheeses, which are mass-produced, often used as an ingredient in further processing);
• 3.6million kg from the member countries of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which includes Pacific Rim dairy exporters like Australia and New Zealand(plus an additional eightmillion kg of industrial cheese and 2.9 million kg of mozzarella and prepared cheeses from the CPTPP bloc);
• 4.1 million kg under the auspices of the CanadaUnited StatesMexico Agreement (CUSMA, which updatedNAFTAin 2020), (plus an additional 4.1 million kg of industrial cheeses from the U.S. or Mexico);
• 20.4 million kg to fulfil World Trade Organization obligations, of which:
  • 14.3 million is reserved forEU members, and
  • 6.1 million is available to all other countries.

A side letter on cheese written to accompany theCanadaU.K. Trade Continuity Agreement in 2020 said that "cheese originating in the United Kingdom shall continue to be eligible to be imported into Canada under the reserve for the European Union within Canada's WTO cheese TRQuntil no later than Dec.31, 2023."

After that, companies like Coombe Castle mustcompetewith exporters from other countries like Switzerland for space in the second, smallerWTOreserve for non-EU countries, which is already 96 per cent utilized.

In the meantime, French, German or Dutch cheese could fillthe gaps British products leave on Canadian shelves. "Something else will replace it, because retailers have to plan for the future," Larvin said."It's sad, really."

"We continue to talk to dairy farmers and producers about the potential changes at the end of the year, including ensuring that they have all the information they need to prepare," aspokesperson for the British High Commission said in a written statement to CBC News, adding thatBritish cheese exports to Canada wereup 11 per cent in 2023.

Import permits controversial

When the U.K.'s entry into the CPTPP takes effect the text for Britain'saccession was reached last summer, and earlier this month Japan became the first member of the Pacific Rim trading blocto ratify its new membership British cheese couldcompete for the TRQ available under that treaty.

That does little to ease Larvin's mind."There isn't enough cheese in CPTPP," hesaid, noting that the U.K. will be up against major dairy exporters like Australia and New Zealand.

And based on his company's experience under CETA, Larvin fearsthe CPTPPmay not be as helpful as advertised.

The CETA,CPTPPand CUSMA all allow Global Affairs to allocate import permits to Canadian dairy processors, instead of retailers or traditional importers.

"It creates almost like a black market for transferring quota," Larvin said. "That's really not what the whole trade deal was about it wasn't meant to become an opportunity for people to make money from trading quota between themselves and not have any interest in importing."

This processalso drives up the costs for consumers, he said."CETA brought in people who were opportunists, and not really in it for the long haul."

The Canadian governmentintended the profits from dairy importsto serve ascompensationtoits domestic dairy industryfor themarket shareitlost to foreign competitors.

That wasn't what treaty partnersfelt they'd bargained for. Canada's TRQ allocation processwas challenged by both the U.S. and New Zealandin recent trade disputes, with mixed results.

The Dairy Processors Association of Canada said it wasn't in a position to comment onthe expiration of Canada's side letter with the U.K. on cheese, saying CBC News'questions wereoutside the scope of their president's expertise.

Could WTO quota previously allocated to the EU bere-assigned to the U.K., sincethe EU is smaller post-Brexit?CBC News asked Global Affairs Canada if it was considering such a reallocation.

"To date, Canada and the U.K. have not agreed to any new arrangement related to U.K. access to Canada's WTOcheeseTRQ," said GAC spokesperson Jean-Pierre Godbout.

Cheese for beef trade-off

"I'm not saying the U.K. is not at fault for leaving the EU," Larvin said, "but it would just be nice for us and our (importer) partner in Canada to have some comfortthat we can continue trading while a sensible agreement is found for both parties."

Larvinsays he understands trade negotiations are difficult. He's written letters andtravelledto both London and Ottawato meet with officials and parliamentarians to explain what's at stake. Everyone likes his products, he said, but he'sleft withthe impression negotiators have "come to the end of the road" for reasons that have nothing to do with cheese.

With bilateral negotiations scheduled to concludein 2024, Canada and the U.K. have yet to harmonize their food safety standards to enable more Canadian meat exports.

Beef and pork producers have been lobbying the Canadian government tohold backany new trade agreement with the U.K. until more of their productsare accepted underBritish regulations.

The Dairy Farmers of Canada also saidin theirletter that they objected to the U.K.'s proposal to include a chapter on animal welfare standards, callingthata threat to Canada's sovereignty and an attempt by the British to dictate Canadian agricultural production standards.

Although the textfor the U.K.'s accession to the CPTPP was finalized last summer, International Trade Minister Mary Ng's office confirmed last week she has yet to even give the required 21-day notice to Parliament to begin Canada's ratification process.

It's an echo of the "cheese for beef" standoff that characterized the end game of the CETA talks a decade ago.

"It feels like we're a bit of a pawn in the whole game of trade negotiations," Larvin said.